The iron pellet industry is operating at half of its annual capacity due to lack of demand but the public sector mining giant NMDC Limited is all set to commence commercial production at its 1.2 million tonne per annum (MTPA) pellet plant at Donimalai in Karnataka during the third quarter.

The company has already commenced trial production at this plant, which is set up at a cost of Rs. 572 crore. This is its first diversification project to go on stream. The company is also setting up a 3 MTPA steel plant in Chhattisgarh as part of its diversification plans. Pellet is a value-added form of low-grade iron ore and is used as a raw material in making steel and sponge iron.

One of the main objectives of this project is to prolong the life of the tailing dam at Donimalai by using 34% Fe slimes for making pellets. We will produce 65% Fe grade pellets in sizes between 6 and 16 mm. The plant is 98% ready for commercial operation, a company official told FE.

NMDC has also signed an Operation and Maintenance (O&M) contract with another public sector company KIOCL Limited, which has a considerable experience in operating pellet plants.

We have deployed 70 of our engineers at Donimalai to operate the pellet plant. There will be around 180 employees from KIOCL to run the plant once the full-scale commercial production begins, a KIOCL official said.

Along with this, NMDC is also setting up a 1.8 MTPA beneficiation plant at Donimalai. The company, which was till now exporting and selling its low-grade ore, will feed it to the beneficiation plant and enrich it for use in its pellet plant. Apart from Karnataka, NMDC is also setting up a 2 million tonne per annum pellet plant at Bacheli in Chhattisgarh.

The combined capacity of pellet plant in India is estimated at 65 million tonne per annum, while hardly 50% of the capacity is utilised. Several merchant plants have either shut down or producing at half of their capacities due to lack of demand.

Pellet prices have crashed in the last one year and averaging at R5,000 per tonne after hitting a peak of R9,800 per tonne in June 2014. Currently, pellet prices are ruling in the range of R4,500 per tonne in the Eastern sector, while in south India, they are sold at R5,000 per tonne for 63% Fe grade.

Export of pellets have stopped as Chinese mills are not buying. Domestic steel mills have also stopped using pellets due to availability of iron ore lumps at much cheaper prices. NMDC will have a tough time in pricing and marketing their pellets, steel industry sources said.

NMDC will not be able to export their pellets because of restriction on exports from Karnataka due to a Supreme Court ruling. If NMDC prices their pellets on par with iron ore lump prices, then they could find some buyers from the sponge iron industry in and around Karnataka, the sources said. The company does not operate with short term goals. We have to be ready with our capacities for the future. We will not produce entire 1.2 million tonnes immediately. By the time we stabilise our production, we hope the market scenario will change and there will be market for our pellets, a company official added.